Get a higher Return On Investment with Wärtsilä

Transcription

1 Get a higher Return On Investment with Wärtsilä Wärtsilä reciprocating engine technology outperforms gas turbines in the ISO-NE market Joseph Ferrari Wärtsilä

2 Wärtsilä Founded in 1834 Headquarters in Helsinki Finland Net Sales 4.7 billion (2013) ~ 18,700 people worldwide Reciprocating, or Internal Combustion Engines 182+ GW installed globally 58+ GW installed power plants (2.7+GW in the US) 2

3 ISO-NE Wärtsilä solutions maximize returns for investors. Results are focused on Equity IRR, but have parallels and meaning for Utility Cooperative Municipal and Industrial investors as well. 3

4 WHAT WE LL COVER Wärtsilä Strengths, Conditions and Business Case Zonal Analysis (ISO-NE zone, tech pricing & parameters, etc.) Investment benefits Wärtsilä brings - By trading strategy (DA, DART, DART+AS) and - Relative to other gas-fired options Extending results to the rest of ISO-NE Incentivizing Flexibility impact of true Real Time Market Settlement 4

5 STRENGTHS, CONDITIONS AND BUSINESS CASE Reciprocating engine Strength Market conditions Business case Operational FLEXIBILITY Volatility Optimization of market operations Dual Fuel (on the fly) 2-5 min start 20% MSL Ramp to full load < 1 min No start costs Min up time ~ 0, min down time 5 min 5

6 COMPARATIVE ANALYSIS STRESSING VALUE OF FLEXIBILITY Traditional 20 year analyses focuses on DA energy Lucrative potential for revenues from - Real Time - Ancillary Services Units with greater flexibility more able to capture these revenue streams. - Wärtsilä customers in other markets take full advantage of this We show financial performance for units - In DAY AHEAD (DA) Market only - In Day Ahead + Real Time (DART) markets - In DART plus Ancillary Services (DARTAS) Comparative: Results for Wärtsilä relative to that of other gas-fired solutions (Simple and Combined Cycle GTs) 6

7 WHAT PART OF ISO-NE? Ascend Analytics (Colorado). 7

8 MODELING APPROACH BACK-CAST Use Simulation tool to find average costs and revenues from (inclusive) 20 YEAR FORWARD Average Costs and Revenues (from backcast) used as common values for next 20 years (considered indicative). EQUITY IRR Calculated for the projected 20 year project / financing timespan 8

9 MODELING APPROACH Back-cast 20 yr. forward Technical input Heat rates (GTPro) Part load heat rates Variable O&M cost Capacity derating Start-up times Start-up costs Market input Day-ahead prices Real Time Market prices Ancillary service prices Daily gas price Modeling platform Excel tool for backcast analysis 5 minute granularity to analyze the real time market Optimize the operation of asset against the LMP and offer capacity optimally between energy and A/S Assumes that capacity fits into the merit if it is feasible to operate the plant Takes into account temperature derating on hourly level Market model outputs Running hours and number of starts 5 minute dispatch profile Revenue per market Operating costs (fuel, VOM, start-up costs) Gross margin from the market + operations Investment inputs Investment cost Fixed Operation & Maintenance costs Capital structure Financial model Project feasibility Project IRR Equity IRR Cash flows Cost of capital Site input Elevation Hourly temperature data Capacity market income 9

10 CAPACITY OPTIONS & INVESTMENT COSTS Looking at 50 to 200 MW simple cycle projects, EPC (everything inside the fence) and assuming all options are dual fuel. Wärtsilä 18V50DF 900 $/kw 100 MW Aero GTs 900 $/kw 40 MW Aero GTs 925 $/kw And assuming in large part they d be considered against a larger 1x1 Frame CCGT (318 MW) 1100 $/kw For all the investment cost was EPC plus a 15% adder for Owners Cost 10

11 ADDITIONAL INVESTMENT INPUTS Factor Value Equity/Debt 30%/70% Debt interest 5% Loan term 20 years Tax rate 37.5 % FOM 10 $/kw-yr 11

12 TECHNICAL INPUTS Unit 18V50DF 40 MW Aero GT 100 MW Aero GT 300 MW CCGT Output (Unit) 16.8 MW 41 MW 102 MW 318 MW Heat Rate 8,400 Btu/KWh 9,365 Btu/KWh 9,105 Btu/KWh 7,000 Btu/kWh Minimum stable load 20% 40% 40% 40% Heat Rate at minimum stable load 11,267 Btu/KWh 12,534 Btu/KWh 12,190 Btu/KWh 8,170 Btu/kWh Start-up time to full load 5 min 10 min 10 min 60 min Start-up cost (maintenance) 0 USD/start 0 USD/start 0 USD/start 25,000 USD/start VOM 5.5 USD/MWh 4.0 USD/MWh 4.0 USD/MWh 1 USD/MWh FOM 10 USD/kW/year 10 USD/kW/year 10 USD/kW/year 10 USD/kW-yr Estimated Water (gal / MWh) 0 0 (dry) 75 (Sprint) Water injected 30 dry IC 140 wet IC 5 ACC 250 Cooling tower 12

13 CAPACITY PRICING / PAYMENTS Finalized capacity auction results confirm resources, prices fo New England power system in From page 2: Used in this analysis 10 $/kw-mo (y 1-7) 7 $/kw-mo (y 8-20) 13

14 RESULTS Day Ahead (DA), Energy Only Day Ahead + Real Time (DART) Energy DART + Ancillary Services (Regulation), (DARTAS) 14

15 Wärtsilä 40 MW GT 100 MW GT 1x1 CCGT Wärtsilä 40 MW GT 100 MW GT 1x1 CCGT Wärtsilä 40 MW GT 100 MW GT 1x1 CCGT Wärtsilä 40 MW GT 100 MW GT 1x1 CCGT Wärtsilä 40 MW GT 100 MW GT 1x1 CCGT Operating Hours Number of Starts OPERATING PROFILES (DA) Day Ahead Energy Average As expected: Operating Hours a function of efficiency Number of Starts a function of Flexibility 15

16 ( $ per MW installed ) GROSS MARGINS (MARKET REVENUE / MW INSTALLED) Average Gross Margin (Day Ahead Energy) Wärtsilä 40 MW GT 100 MW GT 1x1 CCGT 16

17 DAY AHEAD 12 X WÄRTSILÄ 18V50DF 17

18 DAY AHEAD 2 X 100 MW AERO GTS 18

19 DAY AHEAD 5 X 40 MW AERO GTS 19

20 DAY AHEAD 1 X 1 FRAME CCGT 20

21 EQUITY IRR DAY AHEAD SUMMARY, EQUITY IRRs ISO-NE, WCMASS 15.8% 14.4% 11.6% 13% W50DF 100 MW GT 40 MW GT Frame CCGT 21

22 RESULTS Day Ahead (DA), Energy Only Day Ahead + Real Time (DART) Energy DART + Ancillary Services (Regulation), (DARTAS) 22

23 Wärtsilä 40 MW GT 100 MW GT 1x1 CCGT Wärtsilä 40 MW GT 100 MW GT 1x1 CCGT Wärtsilä 40 MW GT 100 MW GT 1x1 CCGT Wärtsilä 40 MW GT 100 MW GT 1x1 CCGT Wärtsilä 40 MW GT 100 MW GT 1x1 CCGT Operating Hours Number of Starts OPERATING PROFILES (DA + RT, OR DART) Day Ahead + Real Time Energy Average 23

24 ( $ per MW installed ) GROSS MARGINS (MARKET REVENUE / MW INSTALLED) Average Gross Margin (Day Ahead + Real Time Energy) Wärtsilä 40 MW GT 100 MW GT 1x1 CCGT 24

25 EQUITY IRR DART SUMMARY, EQUITY IRRs ISO-NE, WCMASS 19.4% 16.9% 13.9% 14% W50DF 100 MW GT 40 MW GT Frame CCGT 25

26 RESULTS Day Ahead (DA), Energy Only Day Ahead + Real Time (DART) Energy DART + Ancillary Services (Regulation), (DARTAS) 26

27 NOTE ON ANCILLARY SERVICES Reserve (spin & nonspin) as per Forward Reserve Market (not included in this analysis). Regulation is per 5-min market with hourly settlement Due to limited data availability (historical) this analysis looks at RegCP relative to energy prices and assumes plant dispatches for Energy + Reg if the revenue is greater than that from energy alone. Therefore revenue benefits from AS (Regulation) in the ISO-NE market is Conservative (under-valued). Figures from: 27

28 Wärtsilä 40 MW GT 100 MW GT 1x1 CCGT Wärtsilä 40 MW GT 100 MW GT 1x1 CCGT Wärtsilä 40 MW GT 100 MW GT 1x1 CCGT Wärtsilä 40 MW GT 100 MW GT 1x1 CCGT Wärtsilä 40 MW GT 100 MW GT 1x1 CCGT Operating Hours Number of Starts OPERATING PROFILES (DART+AS, OR DARTAS) DA+RT Energy + Regulation Average 28

29 ( $ per MW installed ) GROSS MARGINS (MARKET REVENUE / MW INSTALLED) Average Gross Margin (DART + Regulation) Wärtsilä 40 MW GT 100 MW GT 1x1 CCGT 29

30 EQUITY IRR DARTAS SUMMARY, EQUITY IRRs These returns (especially for Wärtsilä) are indicative and conservative as they only represent the $/MWh dispatch against RegCP. ISO-NE, WCMASS 20.8% 17.6% 14.3% 15% W50DF 100 MW GT 40 MW GT Frame CCGT 30

31 OF NOTE WÄRTSILÄ DF SOLUTIONS VS. SG What if your site/application does not need Dual Fuel Capability? Wärtsilä would offer 18V50SG Higher unit output (18.4 MW net vs MW) Lower heat rate (8130 Btu/kWh HHV net, vs. 8400) Lower Capex $50 to 100/kW less expensive) Gas turbine alternatives may also be lower Capex, but their gas performance would not improve. Returns for a pure gas Wärtsilä offering would be Higher than indicated in this analysis Have even greater returns relative to gas turbine options 31

32 APPLICATION TO OTHER ZONES IN ISO-NE? Reciprocating engine Strength Operational FLEXIBILITY Includes Efficiency- What other zones have similar market pricing? Market conditions Volatility Which Zones w/similar market pricing have similar volatility? Business case Optimization of market operations Similar Pricing & Volatility indicates similar business case. 32

33 DAY AHEAD ZONAL STATS Observations 1) DA Pricing going up ( ) 2) DA Volatility going up ( ) 3) Not clear which zones similar to WCMASS 33

34 REAL TIME ZONAL STATS Observations 1) RT Pricing going up ( ) 2) RT Volatility going up ( ) 3) Not clear which zones similar to WCMASS 34

35 WHICH ZONES? Highest prices & volatility (DA & RT) revenues influence financial outcomes (IRRs) Look just at 2014: Zonal prices and volatility relative to WCMASS 2014 Statistics CT CA ME NEMASSBOST NH RI SEMASS VT WCMASS Avg. DA price (Zone/WCMASS) Volatility DA price (Zone/WCMASS) Avg. RT price (Zone/WCMASS) Volatility RT price (Zone/WCMASS) Similarity Metric

36 ZONES WITH EXPECTED MARKET OUTCOMES SIMILAR TO WCMASS Indicated areas would have similar outcomes- in which ICEs provide greater return on investment relative to simple or combined cycle GTs CA = Control Area - everything in ISO-NE except northern Maine, connected to Canada. So the similarity of CA implies much of New England would benefit from fast, flexible ICEs 36

37 INCENTIVIZING FLEXIBILITY IN ISO-NE ISO-NE Initiative: Subhourly Real-Time Settlement Key Project Project Overview * The ISO is evaluating a move to a subhourly settlement interval for generation resources, external transactions, dispatchable asset-related demand resources, and demand-response resources in the real-time markets. The real-time markets (energy, reserve, and regulation) are settled hourly, even though the ISO calculates real-time locational marginal prices (LMPs) every five minutes. Existing settlement rules tend to undercompensate certain resources, particularly more flexible generation and storage assets that respond quickly when system events result in tight operating conditions and there are significant midhour price changes. Compensating resources at the more granular, five-minute price would help improve price formation by ensuring that the price suppliers are paid for real-time performance is a more accurate market signal of the power system s current operating conditions. * From: 37

38 EXAMPLE OF VALUE 5-MIN RT SETTLEMENT WOULD BRING TO FLEXIBLE GENERATION Focal Zone = WCMASS Node ID 4355 (randomly chosen) Month = January 2015 Data collected Hourly average RT pricing ($/MWh) Actual 5-min RT pricing ($/MWh) Gross Revenue using hourly Avg RT settlement (the old way) vs. Gross Revenue using proposed 5-min RT settlement (the new way) 38

39 VISUAL EXAMPLE (REPRESENTATIVE) RT Dispatch 39

40 VISUAL EXAMPLE (REPRESENTATIVE) 182 $/MW with proposed 5-min settlement 103 $/MW with existing hourly settlement 40

41 VISUAL EXAMPLE (REPRESENTATIVE) RT Commit DA commit 330 $/MW, hourly settlement 419 $/MW, 5-min RT settlement 41

42 5-MIN RT SETTLEMENT BENEFITS WÄRTSILÄ'S GREATER FLEXIBILITY Gross revenues for Wärtsilä with proposed 5-min RT settlement 26% increase RT revenue 7% increase in total revenue 40-50% greater revenue than aeroderivative GTs 42

43 Conclusions Wärtsilä maximizes returns in ISO-NE compared to other gas-fired options. In a (load serving) context, translates to Wärtsilä minimizing cost Trends mirrored in other markets as well (Alberta, ERCOT, NYISO, PJM, SPP) The value of flexibility is increasing in the market place Increasing renewable penetration = more volatility New and existing Ancillary Services need flexible capacity In ISO-NE transition to 5-min RT settlement will increase revenues, more so for units with greater flexibility (5-min start, small min up/down times, no start costs, coupled with high efficiency, e.g. Wärtsilä!) Markets recognize the value of flexibility, and it should be incorporated into investment analyses. 43

44 Joseph Ferrari Market Development Analyst